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1.
$4,710 $2,990
525 310
= $8.00
Total maintenance cost at 310 hours of service........................................
Variable maintenance cost at 310 hours of service (310 hr. $8.00).......
Fixed maintenance cost per month............................................................
$2,990
2,480
$ 510
Cost formula:
Monthly maintenance cost = $510 + $8.00X, where X denotes hours of
maintenance service.
2.
3.
4.
$8.00
$ .84*
The regression equation's intercept on the vertical axis is $190. It represents the
portion of indirect material cost that does not vary with machine hours when
operating within the relevant range. The slope of the regression line is $5 per machine
hour. For every machine hour, $5 of indirect material costs are expected to be
incurred.
2.
3.
Do the observations contain any outliers, or are they all representative of normal
operations?
(b)
Are there any mismatched time periods in the data? Are all of the indirect
material cost observations matched properly with the machine hour
observations?
(c)
Are there any allocated costs included in the indirect material cost data?
(d)
4.
Beginning inventory.............................................................
+ Purchases..........................................................................
Ending inventory...............................................................
Indirect material used..........................................................
5.
April
$1,300
5,900
(1,350)
$5,850
High-low method:
Variable cost per machine hour
=
August
$1,000
6,200
(3,000)
$4,200
$5,850
5,500
$ 350
Equation form:
Indirect material cost = $350 + ($5.50 machine hours)
6.
The regression estimate should be recommended because it uses all of the data, not
just two pairs of observations when developing the cost equation.